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The type of due diligence required is determined depending on the type of business, industry and the amount of work involved. Its purpose is to discover any potential issues that may negatively impact the deal and the interests of both parties.

During due diligence, the buyer reviews the financial records of a target company, including the accuracy and completeness of the figures in the Confidentiality Info Memorandum (CIM). It also investigates the assets of the target — checking inventory and fixed assets(opens in a new tab) such as vehicles, machinery and office furniture based on appraisals, licenses, permits survey, mortgages, and leases. Buyers will also conduct a thorough analysis on a target’s deferred expenses (opens in new tab), expense prepaid (opens a new tab) and receivables (opens a new tab).

Operational Due Diligence(opens in an entirely new tab) is the process of analyzing the business model, culture, and leadership of a business. This involves assessing a company’s capability to succeed in its industry and the strength of its brand. It also evaluates a business’s capability to meet revenue and profit targets. Additionally operational due diligence involves looking into a target’s human resource policies and organisational structure to assess employee-related risks such as severance packages and golden parachutes(opens in a new tab).

The risk assessment is the defining element of any due diligence process. It covers financial and legal risks as well as reputational issues that could arise from the transaction. A thorough due diligence process can identify and eliminates these risks, ensuring success of the deal.